More Contraction In Italian Services As The Agony Goes On And On

Italy's services sector contracted for the 11th consecutive month in October and new business levels and corporate morale hit record lows, according to the latest PMI survey published yesterday (Wednesday). The latest Markit/ADACI purchasing managers' index fell to 45.7, only just above July's 45.6, which was the lowest headline reading in the survey's near 11-year history.

"Italian service providers indicated that the entrenchment of the worldwide financial crisis, alongside marked falls in consumer demand, were the primary drivers of falling activity as they resulted in the survey record fall in new orders," Markit said.

The new orders index plunged well below the 50 divide between growth and contraction to 44.0 from September's 49.5, with transport and storage and postal and telecommunications companies the worst hit. Confidence among service providers hit the lowest level since the survey began, dropping to 54.5 from 63.9 in September.

Alongside the manufacturing PMI (see earlier post), which registered its lowest level in its 11-year history in October, and the launching of the bank support plan as domestic credit grinds to a halt (see yesterday) the data underline the daunting task facing Silvio Berlusconi's government which is still considering how to try to revive the economy without adding to the country's massive public debt.

The services PMI survey showed input price inflation drpooed back to a 13-month low, even if at 60.7 it still remained above the long-term average of 59.7. The tough business climate, however, prevented companies from passing their rising costs on to customers and prices charged index fell in October to 49.1, adding to evidence of a drop in inflationary pressures that could calm the troubled nerves over at the European Central Bank as they move in with the first of what are expected to be a series of aggressive rate cuts when they meet this afternoon.


Global Services Contract

Outside Italy, service sector activity in the euro zone hit a fresh decade low in October. The final Markit Eurozone Purchasing Managers' Index slumped to 45.8 the lowest in the survey's 10-year history. The fact that the final reading is significantly below the flash estimate (of only one week ago) and sharply down from September's 48.4 would seem to indicate that the contraction in services is accelerating rapidly at this point across the eurozone.

Global services activity also slumped to its lowest level since 2001 in October, dragged down by the especially weak European service sector, according to the Global Services Business Activity Index, produced by JP Morgan, which plummeted to 44.2 in October from 50.2 in September.

That was the second lowest result in the survey's 10-year history, behind only the month after the September 2001 attacks in the United States.